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Writer's pictureThat PNW Dad

Pay off debt fast with these three strategies



Paying off debt can feel overwhelming, but by choosing the right strategy, you can tackle it in a way that fits your financial situation and personality. Three popular methods— the Snowball, Avalanche, and 0% Balance Transfer strategies—offer different approaches to becoming debt-free, each with its own benefits. Let’s explore how these strategies work and how to choose the one that’s best for you.


The Snowball Method: Builds Momentum


The Snowball Method focuses on building psychological momentum by prioritizing quick wins. To start, list all your debts in order from the smallest balance to the largest, without considering interest rates for now. Then, make minimum payments on all your debts except for the one with the smallest balance. Focus any extra money you can find on paying off that smallest debt. Once that first debt is cleared, take the amount you were paying on it and apply it to the next smallest debt. This creates a snowball effect, as your payments grow larger with each debt paid off, allowing you to gain momentum and stay motivated.


The Snowball Method is highly effective for people who need quick wins to stay motivated. Each time you eliminate a debt, you get a boost of confidence, which encourages you to stick with your plan. However, keep in mind that this method might not save you the most money in interest payments because it doesn’t prioritize debts based on interest rates.


Example:

Let’s say you have three debts:

$500 credit card debt at 18% interest

$1,500 personal loan at 10% interest

$5,000 car loan at 4% interest


In the Snowball Method, you’d focus on paying off the $500 debt first, even though it has the highest interest rate. Once it’s gone, you’d move on to the $1,500 debt, and so on building that momentum and adding the previous payment into the next debt you are tackling. Every time you pay off one debt you will be able to pay the next one even faster even if it might be a larger debt



The Avalanche Method: Saving on Interest


The Avalanche Method is designed to minimize the total amount of interest you pay over time. To use this method, list your debts from the highest interest rate to the lowest, regardless of the balance. Make minimum payments on all debts except the one with the highest interest rate, and apply as much extra money as possible to that debt until it’s paid off. Once the highest-interest debt is gone, move on to the next highest-interest debt and repeat the process. The Avalanche Method is mathematically the most cost-effective strategy because it reduces the amount of interest you pay overall. However, it can take longer to pay off the first debt, which may be discouraging if the largest debts also have the highest interest rates.


Example:

Using the same debts as before:

- $500 credit card debt at 18% interest

- $1,500 personal loan at 10% interest

- $5,000 car loan at 4% interest


With the Avalanche Method, you would focus on the $500 credit card debt first because it has the highest interest rate. Once that’s gone, you’d tackle the personal loan next, then the car loan.


0% Balance Transfer


A 0% Balance Transfer is an option for those with high-interest credit card debt or other personal debt. Many credit card companies offer promotional periods where they charge 0% interest on transferred balances, usually for 12 to 18 months. Here’s how it works:


  • Transfer your high-interest credit card debt to a card offering a 0% introductory interest rate on balance transfers.

  • During the promotional period, make aggressive payments toward the transferred balance, as all of your payment will go toward reducing the principal (since there’s no interest).

  • Try to pay off the balance in full before the promotional period ends, because any remaining debt will be subject to the card’s regular interest rate, which can be quite high.


This strategy can save you a lot of money on interest if you’re disciplined. However, it’s crucial to understand the terms of the balance transfer, including any transfer fees (typically 3-5% of the transferred amount) and the interest rate after the promotional period ends. If you’re unable to pay off the debt before the 0% offer expires, you could end up in the same situation with high interest rates again.


Example:

Let’s say you have a $3,000 credit card debt at 18% interest. By transferring that debt to a 0% balance transfer card, you avoid paying interest for a limited time. If the promotional period lasts 12 months, and you can pay $250 per month, you’ll completely eliminate the debt without paying a dime in interest. If you don’t pay it off in time, though, the remaining balance could jump back to a high interest rate.


Which Strategy is Best for You?

The best debt repayment strategy depends on your personal financial situation and psychology:


Snowball Method is ideal if you need the motivation of quick wins to stay on track. If seeing smaller debts disappear helps you stay committed, this method could be your best bet.

Avalanche Method works for those who are more focused on the numbers and want to minimize interest costs in the long run. If you have a high tolerance for sticking with a longer-term plan and don’t mind waiting for those psychological “wins,” this is a great strategy.

0% Balance Transfer is effective for people with high-interest credit card debt who are confident they can pay off a significant portion of the debt during the promotional period. It’s a great tool for cutting down on interest, but only if you’re disciplined enough to pay it off before the offer expires.


Combining Debt Payoff Strategies for Maximum Impact


Paying off debt isn’t always a one-size-fits-all journey. Depending on your financial goals, personality, and the types of debt you have, a hybrid approach that combines multiple debt payoff strategies could be the key to becoming debt-free faster and with less stress. By merging the Snowball, Avalanche, and 0% Balance Transfer*strategies, you can create a customized plan that plays to the strengths of each method while keeping you motivated and financially efficient. Each debt payoff method has its strengths. The Snowball Method offers psychological wins by knocking out smaller debts quickly, keeping you motivated along the way. The Avalanche Method saves you the most money on interest in the long run, but it might take longer to see noticeable progress. The 0% Balance Transfer can provide temporary relief from high-interest credit card debt, giving you breathing room to make substantial payments without the added pressure of accruing interest. By combining elements of all three, you can tailor your approach to meet both your emotional and financial needs.


Here is the strategy my wife and I used to pay off all of our debt.


We combined the Snowball Method and the 0% Balance Transfer strategy to create a powerful debt payoff plan that gave us quick psychological wins and for us thats what we needed. Once we paid off the smallest debt we added whatever payment we were giving to the next debt and kept paying the minimum on everything else. The payment snowball grew really quickly and allowed us to be debt free in a little under 2 years.


There are many other ways to combine these strategies depending on what your goals are so just play around with them.


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